Business Daily from THE HINDU group of publications
Saturday, Nov 18, 2006

Cross Currency

Group Sites

Opinion - People
Industry & Economy - Economics
`Economics is a fascinating discipline'

When Milton Friedman came to India as an adviser in 1955, he observed that "the great untapped resource of technical and scientific knowledge available to India" was "the economic equivalent of the untapped continent available to the US 150 years ago." He tried in vain, however, to convince India's decision-makers about the virtues of free markets.

When Edmund Phelps won a belated Nobel for Economics recently, people remembered Milton Friedman. For, "Around the same time as Phelps presented his models of equilibrium unemployment, Milton Friedman (economics laureate in 1976) provided his well-known critique of the Phillips curve (Friedman, 1968)," as recounts in an October 9 document brought out as Advanced information on Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

Friedman had shared Phelps's view that unemployment could not be permanently reduced by expansionary demand policy. And the document recounted how, according to Friedman, there exists an equilibrium rate of unemployment, determined by the real features of the economy, which he had called `the natural rate of unemployment'.

In less than a month since, we remember Friedman again; for, he is no more. "My mother ran a small retail `dry goods' store, while my father engaged in a succession of mostly unsuccessful `jobbing' ventures," reads his autobiography, on the site of the Nobel Foundation, excerpting from Nobel Lectures, Economics 1969-1980,' edited by Assar Lindbeck (World Scientific Publishing Co, 1992).

"The family income was small and highly uncertain; financial crisis was a constant companion. Yet there was always enough to eat, and the family atmosphere was warm and supportive," reminisced Friedman about his childhood. His earthy account speaks of: Graduating from Rutgers in 1932, financing college expenses `by the usual mixture of waiting on tables, clerking in a retail store, occasional entrepreneurial ventures, and summer earnings'; taking actuarial examinations, `passing several but also failing several'; and `meeting a shy, withdrawn, lovely, and extremely bright fellow economics student, Rose Director'. He was to marry Rose six years later, after `depression fears' of where their livelihood would come from `had been dissipated'. You can also find nuggets of his wry humour in his speech at the Nobel Banquet, December 10, 1976. Friedman then spoke of how his monetary studies had led him to the conclusion that central banks could profitably be replaced by computers geared to provide a steady rate of growth in the quantity of money! "Fortunately for me personally, and for a select group of fellow economists, that conclusion has had no practical impact... else there would have been no Central Bank of Sweden to have established the award I am honoured to receive."

In that short speech, he also spoke of his realisation that not only is there no free lunch, there is no free prize. How so?

The announcement of a Nobel award "converts its recipient into an instant expert on all and sundry, and unleashes hordes of ravenous newsmen and photographers from journals and TV stations around the world," observed Friedman. "I myself have been asked my opinion on everything from a cure for the common cold to the market value of a letter signed by John F. Kennedy." The attention is flattering, but also corrupting, he rued, commenting about `the inflated attention granted a Nobel Laureate in areas outside his competence'.

Interestingly, more than two decades before Friedman became a Nobel laureate, he served a stint as `Consultant, International Co-operation Administration (India)' in 1955, as reveals his bio on As if in response to the large number of Left-leaning advisers with people such as Mahalanobis, the US Government had sent Friedman to India as an adviser. The latter, however, tried in vain to convince India's decision-makers about the virtues of free markets. Thus reminisces former RBI Governor, I. G. Patel, in his book Glimpses of Indian Economic Policy — An Insider's View. To know what Friedman had suggested, you may have to read Friedman on India, edited by Parth J. Shah (Centre for Civil Society, 2001).

The book brought together two articles that Friedman had written on India in 1955 and 1963. The first, titled, A Memorandum to the Government of India, and dated November 5, 1955, began thus: "A 5 per cent per annum rate of increase in real national income, seems entirely feasible, on the basis of both the experience of other countries and of India's own recent past." Because, according to Friedman, "the great untapped resource of technical and scientific knowledge available to India for the taking is the economic equivalent of the untapped continent available to the US 150 years ago." The basic question, as he saw, was one of "method, of the social and economic arrangements that will best promote the conversion of these potentialities into realities while at the same time maintaining freedom and democracy and giving ever-widening opportunities to the mass of the Indian people."

In less than 5,000 words, he had summed up the problem and the remedies. "The fundamental problem for India is the improvement of the physical and technical quality of her people, the awakening off sense of hope, the weakening of rigid social and economic arrangements, the introduction of flexibility of institutions and mobility people, the opening up of the social and economic ladder to people of all kinds and classes," he emphasised in conclusion. "India is on the move," he wrote, optimistically. "So much is being done and such a good beginning has been made on this fundamental problem of creating the human and social basis for a dynamic and progressive economy."

Only, his write-up submitted to C. D. Deshmukh, then Finance Minister, perhaps got deep into the shelves for decades.

Delivering the Eleventh C.D. Deshmukh Memorial Lecture on December 7, 2000, in Mumbai, Charles A. E. Goodhart of London School of Economics recounted how his first role at the Bank of England in 1968 was to try to explain the works of Milton Friedman and the Monetarists to the Bank, and the Bank of England's approach and viewpoint to the Monetarists. "That was not so simple," he conceded. "One of the greater pleasures of the last decade has been that this gap, initially a chasm, between academic monetary economists and Bank economists has virtually disappeared." Wonder if there are suggestions such as of Friedman still gathering dust in the North Block.

But Friedman knew his ideas might take time to see the light of the day. When, soon after the announcement of the Nobel Prize, a reporter asked him, "Do you regard this as the pinnacle of your career?" Friedman had said, "No." Why so? Because he was more interested in what his fellow economists would say about his work 50 years from then than about what seven Swedes might say about his work then. This anecdote finds mention in the fourth edition of Lives of the Laureates edited by William Breit and Barry T. Hirsch, from Academic Foundation (

"My life as an economist has been the source of much pleasure and satisfaction. It is a fascinating discipline. What makes it most fascinating is that its fundamental principles are so simple that they can be written on one page that anybody can understand them, and yet that very few do," Friedman had said, when wrapping his speech delivered on March 21, 1985 in Trinity College, San Antonio. Alas, an obit for the colossus he was cannot be written on one page.

D. Murali

More Stories on : People | Economics

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Bioethanol: For a mature policy

From clamped bed to what's born in mud
An amendment that can boost M&A
Innovative instruments to raise banking capital
Revenue shoots itself in the foot
Remembering Hasmukhbhai T. Parekh — The man who gave people a home
`Economics is a fascinating discipline'

The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | The Hindu ePaper | Business Line | Business Line ePaper | Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |

Copyright 2006, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line